ESPN Report: Orlando Magic among teams that lost money in 2017
A confidential financial report showed the Orlando Magic were among the nine teams that lost money in 2017, according to a report from ESPN.
The NBA is awash in cash right now.
The league is seeing a surge in popularity that has made it central to the mobile world of younger viewers. It signed a massive new TV deal that sent salaries skyrocketing around the league to account for all the new revenue. The league is stable with 30 teams in new arenas or set to move into new arenas. And the talent in the league is as good as it has been for some time, no matter what older generation players say.
There is hardly anything anyone could complain about, it would seem when it comes to the NBA’s business. The league still has to adjust to its new financial reality in many ways. But the league should still be making plenty of money.
But that is apparently not the case. Apparently, mo’ money equals mo’ problems. Especially when revenue from other sources does not jump with expenses.
According to confidential NBA financial records obtained by Brian Windhorst and Zach Lowe of ESPN, 14 of the league’s 30 teams lost money before revenue sharing. Including revenue sharing, nine teams still lost money last season. Including the Orlando Magic.
The financial records paint a picture of a league that has a lot of money, but an imbalance of who is making that money and how it is distributed. Small market teams like the Magic are caught in the middle.
Some of this is certainly because of the massive spike in revenue from the new television deal. It forced owners from markets big and small to increase their spending to meet the requirements of the collective bargaining agreement. Local TV deals and other sources of income did not increase to catch up. It is hard for a team like the Orlando Magic to get a TV deal at the same level as the Los Angeles Lakers or New York Knicks.
What is also interesting is this seemed to hit teams that are both struggling like the Magic and teams that are doing well on the court fairly equally. Among the teams that lost money even after revenue sharing according to this report were seven Playoff teams — including the San Antonio Spurs and Cleveland Cavaliers. The Cavaliers have one of the largest payrolls in the league.
Orlando Magic
The Magic opted to go into free agency after the cap spike and spend significantly too. The team gave long-term contracts to D.J. Augustin and Bismack Biyombo in hopes of making a leap to the Playoffs. It did not happen and the team had one of its worst seasons in franchise history.
Attendance did not suffer, though. The team’s attendance at the Amway Center rose from 17,543 in 2016 to 17,753 per game, according to Basketball-Reference. The Magic reported three of the five most-attended games since moving to the Amway Center during the course of the 2017 season.
TV ratings for the team dropped last year as the team struggled once again. At one point, it was reported Orlando’s television ratings had dropped 50 percent from the 2016 season. That is generally expected when a team struggles. And it may not affect revenue since the TV deal is already signed and set in stone — Orlando’s TV deal is reportedly up pretty soon, perhaps increasing the pressure to make the Playoffs sooner than later.
The Magic as a business organization did not do well in 2017. And that influx of money into the coffers that teams were required to spend did not help matters much either.
Lest fans think the Magic are about to cut spending drastically, Orlando reportedly is preparing to spend more this season starting with the hiring of Jeff Weltman as president of basketball operations and John Hammond as general manager as they put together their new management staff.
It is unclear what the league would include in the calculations from Windhorst and Lowe’s report. Would the Magic’s purchase of the Orlando Solar Bears be included or is that a separate business purchase?
As the Board of Governors prepares to meet at the end of September in New York, the revenue sharing formula and the widening gap between franchises who have access to more revenue and those that do not is going to come into greater focus. It seems league-wide revenue is not catching up to the new expenditures the league has to pay out to meet the collective bargaining agreement procedures.
Before anyone begins to panic. This is an owners-only problem. ESPN reports this will not threaten any games or cause a work stoppage any time soon. For now, it is not something the owners will force the players to pay for in collective bargaining.
The current collective bargaining agreement runs through 2024. And the league, as a whole, is still making a ton of money. It is just adjusting to a new reality.
And before anyone goes crying about the Magic either. The team has invested in developing the property across the street from the Amway Center into a new entertainment complex. That promises to bring in more revenue to the team that may not count toward the revenue counted in this league financial report (nor would it go to the players as part of basketball-related income).
There may be some new battle lines drawn. But likely the owners will resolve this themselves. They will come up with a new formula to split the massive amounts of money the league is making and spread the profit around to all 30 owners. It takes just a simple majority vote to do so.
The Magic themselves may not be making money as a business. But it is hard to say business in the NBA is bad. It is still quite good. The league’s owners just have to find a way to split that massive pie among themselves.
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For the Magic, if they want business to be good again, winning is still the best way to do so.